Punjab & Sind Bank declares SREI firms' outstanding dues as fraud

Lender becomes first to classify SREI Infra Finance and SREI Equipment Finance as fraud accounts, say sources; bank says the accounts fully provided for as per prudential norms

Punjab & Sind Bank has declared outstanding dues of SREI companies as fraud, it said in a notice to the stock exchanges on Tuesday.

In its filing, the bank said that the NPA accounts, SREI Infrastructure Finance (SIFL) with outstanding dues of Rs 510.16 crore and SREI Equipment Finance Limited (SEFL) with outstanding dues of Rs 724.18 crore have been declared as fraud and reported to the RBI today as per regulatory requirement.

With this, the bank became the first to classify SIFL and SEFL as fraud accounts, according to sources.  

In its filing, the bank also said that the accounts have been fully provided for as per prescribed prudential norms.

Sources close to SREI promoters said that it was unfortunate that a public sector bank had taken such a step even when the KPMG report – on which the decision is seemingly based – is still sub-judice. “Necessary legal steps will be initiated in this regard,” they said.

SREI promoter, Hemant Kanoria, challenged the KPMG forensic report on January 19, 2022, before the Kolkata Bench of the National Company Law Tribunal (NCLT). In the application, he had sought setting aside the KPMG report and restraining UCO and Axis Bank (the lead banks in the consortium) from publishing information and taking action based on the audit.

However, separate legal proceedings may be initiated after the Punjab & Sind Bank move.

KPMG, it may be mentioned, was appointed by lenders in April 2021, when they were considering a loan recast. However, in October the RBI superseded the boards of the two SREI companies and the corporate insolvency resolution process was initiated.

As of January 31, 2022, the total amount of admitted claims of commercial banks stood at Rs 22,964.64 crore while total admitted claims including domestic institutions and ECB lenders was Rs 31,918.46 crore.

Kanoria’s application before the NCLT has been heard. But even as an order was awaited, Kanoria, in March, wrote to RBI governor, Shaktikanta Das, asking him to advise banks and lenders not to act against the two SREI companies based on “inconclusive” findings in the KPMG forensic report. In the letter, Kanoria had contested the KPMG report on mainly on grounds of parallel audit and lack of proper process being followed to complete the report.

On Tuesday’s move by Punjab & Sind Bank, sources close to SREI promoters said that the public sector banks were damaging their own recoveries. The company they said had offered full payment with interest which was formally refused by the banks.